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Baker v. Loves Park Sav. & Loan Ass'n

OPINION FILED JUNE 2, 1975.

ROBERT E. BAKER ET AL., APPELLANTS,

v.

LOVES PARK SAVINGS AND LOAN ASSOCIATION, APPELLEE.



Appeal from the Appellate Court for the Second District; heard in that court on appeal from the Circuit Court of Winnebago County; the Hon. Fred J. Kullberg, Judge, presiding.

MR. JUSTICE RYAN DELIVERED THE OPINION OF THE COURT:

The plaintiffs, Richard E. Baker and Laurie J. Baker, executed a promissory note dated March 5, 1967, payable to the defendant, Loves Park Savings and Loan Association. The note was for $15,700 with interest at 6 percent per annum and provided for monthly installment payments of $102. The note was secured by a mortgage on property improved with a single-family residence owned by the plaintiffs. Section A(8)(d) of the mortgage provides:

"A. THE MORTGAGOR COVENANTS DURING THE TERM OF THIS MORTGAGE:

(8) Not to suffer or permit without the written permission or consent of the mortgagee being first had and obtained:

(d) A sale, assignment or transfer of any right, title or interest in and to said property or any portion thereof. * * *"

The note provides:

"We further agree that upon any default upon this obligation, or the instrument securing it, interest at the rate of one per cent (1%) per annum above the original rate provided herein on the unpaid balance of this indebtedness may be charged for the period of such default. Upon any default under this obligation, or the instrument securing it, at the option of the holder of this note, the unpaid balance of this note, and any advances made under it, or the instrument securing it, together with interest, shall become due and payable, time being the essence of this contract. * * *"

On March 14, 1970, without securing mortgagee's consent, the plaintiffs entered into an agreement for warranty deed contracting to convey the property covered by the mortgage to Alfred G. Wilson and Linda L. Wilson. The contract provides that the purchasers are to pay to the plaintiffs $102 per month, which amount includes interest at the rate of 6 percent per annum on the unpaid balance of the purchase price. The plaintiffs deposited an executed warranty deed in escrow to be delivered to the purchasers upon completion of the contract. The agreement provides that the purchasers are to have immediate possession.

The defendant learned of this transaction and on March 26, 1970, informed the plaintiffs by letter that it would not recognize the sale and that it would thereafter charge the additional 1 percent interest provided in the note increasing the monthly payments to $109.

The plaintiffs have refused to consent to the payment of the increased interest and have continued to make payments of $102 per month to the defendant. The defendant has added to the unpaid balance of the note the additional 1 percent per month interest.

Plaintiffs brought this action in the circuit court of Winnebago County seeking a declaration that section A(8)(d) of the mortgage and the corresponding provision of the note are unlawful and unenforceable. Count II of the amended complaint prays for a declaration that the defendant has waived any benefits of these provisions.

Following the filing of an answer the plaintiffs moved for summary judgment alleging the invalidity of the provisions of the note and mortgage as being restraints on alienation. They also alleged that the provision of the note providing for additional interest in the event of default is invalid. The defendant also filed a motion for summary judgment. The circuit court of Winnebago County denied the defendant's motion and allowed the plaintiffs' motion for summary judgment on Count I, finding that section A(8)(d) of the mortgage constitutes an unlawful restraint on alienation.

The appellate court reversed the judgment and remanded the cause to the circuit court with directions that it determine whether the restraint on alienation is reasonable under the circumstances involved in this case. (21 Ill. App.3d 42.) We granted plaintiffs' petition for leave to appeal.

The power of alienation of real property, since an early date of the English common law, has been thought to be socially and economically desirable and is now regarded as an attribute of ownership. (Schnebly, Restraints Upon the Alienation of Legal Interests: I, 44 Yale L.J. 961 (1935).) From this early concept the rule against restraints on alienation has developed, although not always logically or consistently. It is not necessary in this opinion to develop the historical evolvement of the law relating to restraints nor to discuss the reasons therefor or the exceptions thereto. The subject has been extensively covered by writers in this field. See generally 6 R. Powell, The Law of Real Property, ch. 77; Bernhard, The Minority Doctrine Concerning Direct Restraints on Alienation, 57 Mich. L. Rev. 1173 (1959); ...


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